Release Date: March 31, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Nortech Systems Inc (NASDAQ:NSYS) has implemented a near-shoring strategy in China, reducing tariff exposure by focusing on in-country production.
• The company has completed a 30% reduction in Maple Grove lease space, resulting in expected annual savings of $1.6 million.
• Nortech Systems Inc (NASDAQ:NSYS) has invested in a world-class leadership team and industry-specific business development team, driving impressive business quotes and opportunities.
• The company is focusing on innovation with advancements like the expanded beam Xtreme (EBX) and Active Optical Extreme (AOX) technologies, enhancing product offerings.
• Nortech Systems Inc (NASDAQ:NSYS) is committed to sustainability, with fiber optic technology offering environmental benefits and aligning with customer goals.

Negative Points

• Net sales for the fourth quarter of 2024 decreased by 20.6% compared to the same period in 2023, reflecting significant revenue headwinds.
• The closure of the Blue Earth facility and transfer of operations to Bemidji led to unexpected delays and negatively impacted aerospace and defense market sales.
• Gross profit margins decreased in 2024 due to lower net sales and reduced facility utilization.
• The company experienced a reduction in customer backlog as customers changed purchasing patterns, leading to shorter lead times and smaller backlogs.
• Adjusted EBITDA for the fourth quarter of 2024 was negative, reflecting lower net sales and related gross profit.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Signs with NSYS.

Q: Can you elaborate on the impact of customer order delays and how it affected your Q4 2024 results? A: Jay Miller, President and CEO, explained that customer order delays significantly impacted Q3 and Q4 net sales. Customers have been delaying product purchases and reducing inventories, which is a trend seen across many contract manufacturers. This has particularly affected their aerospace and defense market due to the closure of the Blue Earth facility and the transfer of customer programs to Bemidji, causing unexpected delays in customer approvals.

Q: How are tariffs affecting Nortech's operations, especially with facilities in China and Mexico? A: Jay Miller noted that while tariffs with Mexico are uncertain, Nortech operates under a maquiladora structure, reducing direct exposure. For China, much of the production is built in-country for country, minimizing tariff impacts. However, they are monitoring the situation closely and adjusting customer pricing and sourcing strategies as needed.

Q: What cost-saving measures have been implemented, and what are the expected savings? A: Jay Miller highlighted that they completed a 30% reduction in their Maple Grove lease space and closed the Blue Earth facility, resulting in at least $1.6 million in annual savings starting in 2025. They have also reduced headcount based on current operating metrics.

Q: Can you discuss the financial performance for Q4 2024 and the year as a whole? A: Andrew LaFrann, CFO, reported that Q4 2024 net sales were $28.6 million, a 20.6% decrease from Q4 2023. For the year, net sales were $128.1 million, down 8% from 2023. The decrease was due to market softness, delayed product launches, and reduced customer inventories. Gross profit for Q4 was $2.8 million, down from $6.8 million in Q4 2023.

Q: What are Nortech's strategic priorities for 2025? A: Andrew LaFrann emphasized strengthening the balance sheet, reducing inventory investments, and aligning operations with market demand to drive sustainable long-term EBITDA growth. They aim to improve free cash flow through disciplined operations, expense management, and R&D innovation.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.